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Fighting Inequality: Rule of Law Vs. Legal Plunder

The release of Thomas Piketty’s new book “Capital in the
Twenty-First Century” by Harvard University Press has caused a rush
of media attention for the 42-year-old professor who teaches at the
Paris School of Economics.

He advocates a steeply progressive income tax with a top rate of
80% along with a wealth tax to reduce inequality, which he finds to
be on the rise globally.

If his scheme were implemented, “legal plunder” (a term coined
by the 19th century French liberal Frederic Bastiat) would
undermine the rule of law, which is meant to safeguard persons and
property, and turn the concept of justice on its head — from
meaning the prevention of injustice to the use of force to dictate
some politically favored distribution of income and wealth.

Piketty claims he is not a Marxist but rather a socialist with a
belief in private property. Yet, the contradiction should be
apparent: One cannot defend private property and at the same time
call for a massive taking of property.

Following the policy
prescriptions of Piketty and Shiller would not lead to social
harmony and prosperity, but rather to injustice and the loss of
liberty.

Piketty reveals his preferences when he states: “Capitalism and
markets should be the slave of democracy and not the opposite.”

In his view, property is not a natural right prior to the law;
it is a creation of the state. Hence, the majority should be able
to use the power of government/legislation to heavily tax the rich
and near-rich. The purpose would be to rid the world of inequality.
This is his moral imperative.

The likely result of this utopian scheme would be to drive
creative people out of high-tax countries, slow economic growth,
and make societies poorer in the long run.

More important, as the size and scope of government grew, there
would be a consequent loss of personal and economic freedom.
Rent-seeking, corruption and the demise of individual
responsibility — as property rights were attenuated —
would destroy the fabric of civil society.

The U.S. was designed as a government of limited powers, as a
constitutional republic, whose primary function is to safeguard
persons and property so that liberty and justice reign; it was not
meant to be a redistributive state.

Piketty is by no means alone in his quest for greater income
equality. Nobel laureate economist and Yale Professor Robert
Shiller would use an indicator of inequality to determine the
progressivity of income taxes: the higher the measure of
inequality, the higher the marginal income rates would be. In a
recent interview with David Wessel in WSJ.Money, Shiller stated:
“If billionaires turn into multibillionaires, we don’t let that
happen. If you want to make $10 billion and spend it on yourself,
we won’t let you. We will take a good fraction of it, and you’ll
still be a billionaire, so what?”

The presumption is that the rich don’t need any more money and
that others have a claim to their wealth.

In other words, the state has the right to take a person’s
income after a certain point and redistribute it.

This is democratic socialism pure and simple, and it violates
the principle of freedom/nonintervention. It also assumes that
entrepreneurs are not responsive to incentives and that economic
exchanges are zero sum — that is, the rich producers gain at
the expense of others.

Shiller goes on to say that if the rich wish to give their money
away, then they should get a big tax break.

But for “selfish people at the top who don’t want to give it
away,” we should just take it. He ignores the fact that when the
money is reinvested in the owner’s business or elsewhere, new jobs
and wealth are created, which benefit society.

And if the rich wish to consume their incomes, they should have
the freedom to do so.

Piketty and Shiller are praised for being concerned about the
evils of income inequality without recognizing that their own plans
for equality would violate the very principles of property and
freedom that are the hallmarks of America’s greatness.

Only voluntary redistribution meets the criterion of justice. As
Bastiat noted, the function of government is to prevent injustice
— that is, the taking of property — not to promote some
ideal of distributive justice.

The great Scottish Enlightenment thinker Adam Smith, a moral
philosopher who is sometimes referred to as the “father of modern
economics,” wrote in 1762: “The first and chief design of every
system of government is to maintain justice; to prevent the members
of a society from encroaching on one another’s property, or seizing
what is not their own.”

True morality and justice require the protection, not the
taking, of property. Following the policy prescriptions of Piketty
and Shiller would not lead to social harmony and prosperity, but
rather to injustice and the loss of liberty.

What America and other countries need are institutions that
protect property rights and lower taxes so that all people can
prosper under a stable and just rule of law.

In drawing the line between the individual and the state, one
needs to return to first principles, not to “rock star”
economists.